Hong Kong Office

Entry into the China market can be a challenging and often daunting task. Not only is the market constantly evolving, it is made up of a diverse set of consumers whose life experiences are shaped by myriad factors including geographical location, social status, education, and economic opportunity.

Economic reforms have raised the standard of living of large numbers of consumers; however, income disparity is stark and the rural poor still constitute a large percentage of the population.

Consumers living in rural or semi-rural towns and villages have little disposable income, with many relying on remittances from family members that have migrated to work in larger cities.

These consumers could not be more different from the university educated, white-collar workers inhabiting first and second tier cities, who are likely to live at home until marriage and therefore have the discretionary income to purchase branded products and enrich their lives with entertainment and experiences.

However, there are two drastic changes currently underway. The first is the increasing urbanization of China with much of its rural population migrating to cities. By 2025, China will have 221 cities with one million-plus inhabitants and 23 cities with over 5 million inhabitants. This trend will have a profound impact on consumer behavior patterns and will dramatically increase the number of consumers with exposure and access to quality branded goods. However, in order to reach China’s expanding middle class will require a presence in an ever larger number of cities.

The second shift involves rising consumption and purchasing power. Consumption, as a share of GDP, is set to grow from 37 percent today to 45 percent in 2025. And even as GDP growth slows, personal income in China’s urban areas is expected to climb 8% per annum for the next 20 years, driven by the creation of higher value manufacturing and service jobs. Brands that are reaching maturity in China’s first-tier cities will need to accelerate their expansion into second and even third tier cities where consumer incomes are rising and household spending is trending upwards. This growth represents an enormous opportunity for brands that remain relatively unknown in China or brands looking to establish loyalty among new consumers.